Adding Some Solar: Bought CAFD

I want some exposure to solar, which goes along with my theme of alternative energy as articulated before.

For years now, people have been talking about solar, and its efficiency and ‘awesomeness’. Advocates for the technology will tell you it will cut your household electricity costs by a 2/3, literally overnight, and to the surprise of many that is in fact true in some cases. Unfortunately for investors this sector has been one big circle jerk, filled with frustration and disenchantment. I remember buying stocks like FSLR, SPWR, SCTY, YGE back in 2012 with high hopes they would be worth a gazillion dollars in a few years, only to sell them shortly after due to constant earning misses. I check back at those names now and they are, much to the chagrin of solar bulls, trading near all time lows.

The business of supplying panels is a very cyclical one as is with most supply side businesses. In search of something more stable, panel makers got into the business of sponsoring yieldcos, which went well for a bit, then quickly turned south, with the bottom marked a few years ago by bankruptcy in SUNE. Since then, yieldcos have recovered in full swing and pay some of the highest stable dividends I’ve seen for publicly traded securities.

To get in on this, I stepped in and bought some CAFD at $14.66, and more at $14.54.

Is the timing right now to invest in solar? I don’t know, and won’t pretend I do. Quite frankly, it doesn’t really matter, because yieldos have a strong bid underneath them regardless.

Heres how it works.

Yieldcos, such as CAFD, are sponsored by large solar panel makers, and in their case that is FSLR and SPWR, both of which own a sizable stake. This shareholder base is fairly stable, as both are large players with vested interest in what is an ancillary business to what they do.

What is most attractive, however, is the attention this space has been getting from other energy giants looking to get into alternative energy, namely big oil. I can think of a handful of big oil or energy utilities looking to diversify their businesses into alternative energy, such as TOT, DUK, AES, SO, EXC, D, etc. and their first stop are yieldcos. Why? The general trend is shifting from fossil fuels to renewable energy and this is an easy flow of cash for their renewable energy arms. As a matter of fact, I wouldn’t be surprised to wake up one day to see CAFD completely bought out by TOT.

These guys pay a 7.2% at these levels, with dividend payments increasing every quarter – one of the conditions I was looking for in a long term investment. Rather than being a slave to NASDAQ futures being long high beta semiconductor stocks I’d get better sleep sitting on yieldcos. Granted, it is not as exciting, and sure as I am saying this I will be back in those AI and machine learning stocks when the time is right, but that is not now.

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A travelling entrepreneur documenting lessons and challenges learned on the journey. My time is split between Asia and North America, and am always on the lookout for opportunities. I offer a different perspective on business in Asia.